Business Performance Management Financial Performance Analysis 2

Question 1

What does a high 'inventory turnover ratio' typically indicate?

Accepted Answer

The company is efficiently selling and replenishing its inventory

Answer

A high inventory turnover ratio indicates that a company is selling goods quickly and efficiently, reducing carrying costs and obsolescence risk.

Question 2

In financial benchmarking, what is a 'peer group comparison'?

Accepted Answer

Evaluating a company's financial metrics against similar companies in the same industry

Answer

Peer group comparison benchmarks a company's financial ratios and performance metrics against competitors of similar size and industry to identify relative strengths and weaknesses.

Question 3

What does 'operating leverage' measure in business performance?

Accepted Answer

How a percentage change in revenue affects operating income due to fixed costs

Answer

Operating leverage measures how sensitive operating income is to changes in revenue, driven by the proportion of fixed versus variable costs.

Question 4

What is 'economic value added' (EVA) used to measure?

Accepted Answer

The profit generated above the required minimum return for shareholders

Answer

EVA measures the surplus profit generated above the company's cost of capital, indicating whether value is truly being created for shareholders.

Question 5

In a rolling forecast, what differentiates it from a traditional annual budget?

Accepted Answer

Rolling forecasts are continuously updated to maintain a fixed forward-looking horizon, unlike static annual budgets

Answer

A rolling forecast extends continuously as each period passes (e.g., always 12 months forward), making it more responsive to business changes than a fixed annual budget.

Business Performance Management Practice Test

Business Performance Management Practice Test

Business Performance Management Financial Performance Analysis 2